Greece will not be forced to exit euro, says Danske Bank

By: Jonathan Boyd | 28 Nov 2012

Danske Bank’s investment researchers have concluded that Greece’s membership in the eurozone is safe, despite the latest agreement with EU leaders not being seen as sufficient to reach debt targets agreed with the IMF.

The Danish bank said in a research note today that Europe’s politicians were probably aware of the problems contained in the latest agreement, and Ware now mentally preparing themselves to take further steps after the German elections.”

“With few other options left EU leaders will eventually have to accept a debt write-down. This is the most important message to take home from the Greek aid deal: EU leaders are ready to do more for Greece at a later stage. Greece will not be forced to exit.”

The figures agreed between Greece, the EU and the IMF, ask for budget tightening of a further 6% of GDP over the next four years.

They have assumed that the budget surplus will reach 4.5% of GDP, and that nominal growth will return and remain at 4%.

Danske said these figures left “plenty of room for disappointment”.

“The most important statement in the Greek aid deal was probably that ‘Euro area Member States will consider further measures and assistance, including inter alia lower cofinancing in structural funds and/or further interest rate reduction of the Greek Loan Facility, if necessary, for achieving a further credible and sustainable reduction of Greek debt-to-GDP ratio, when Greece reaches an annual primary surplus’. In short, politicians are well aware that they will probably have to do more for Greece at a later stage and they are already mentally preparing themselves to take such steps,” Danske said.